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As the calendar turns to a new 12 months, you may be in danger for dropping cash if you have a flexible spending account.
Many FSA homeowners have a Dec. 31 use-it-or-lose-it deadline to use the funds they’ve put aside for the 12 months.
The common forfeit of funds final 12 months from an FSA was $300, in accordance to Rachel Rouleau, chief compliance officer at FSA Store. Of course, some account holders misplaced even greater sums.
Flexible spending accounts are accounts that may be offered alongside an employer well being plan and used to pay for eligible out-of-pocket medical prices. The cash contributed to an FSA is just not topic to federal revenue taxes.
In 2024, staff are in a position to put up to $3,200 in an FSA, up from $3,050 in 2023.
Even for these account holders who may have had to forfeit a number of hundred {dollars} on the finish of final 12 months, the tax benefits nonetheless make the accounts worthwhile, in accordance to Rouleau.
For instance, if you put aside $2,000 in your FSA and save 30% on taxes, that quantities to $600.
“Even if you lose $300, you still made the right decision,” Rouleau stated.
Ideally, each greenback put aside in an FSA ought to be used towards eligible health-care bills.
The excellent news is “there are thousands of ways for people to avoid losing those pre-tax dollars,” Rouleau stated.
If you’re uncertain the place to begin, these three ideas will help.
1.  Find out the principles for your unused FSA stability.
Your employer may not essentially require you to use all of your FSA funds by Dec. 31.
“It’s important for the employee, if they have an FSA, and they’re running up against the deadline to know, do they have to use it before the deadline runs out?” stated Lawrence Sprung, a licensed monetary planner and founding father of Mitlin Financial in Hauppauge, New York.
You may have the choice to carry over unused funds into the subsequent 12 months. Up to $610 may be carried over into 2024, per IRS rules. Funds above that quantity may be misplaced.
Alternatively, your FSA plan may supply a grace interval till March 15 to spend down your 2023 FSA funds.
Or you may have a runout interval, or a number of months after the top of the final plan 12 months to submit receipts for certified bills that have been incurred in 2023.
To discover out the precise guidelines that apply to your account, you may contact your FSA administrator, which generally lists their contact data on an FSA debit card. Your human assets division may additionally be in a position to present that data.
2. Create a technique to use your stability.
Though time may be working out, there are nonetheless loads of methods to use your FSA cash earlier than the Dec. 31 deadline.
If you have a greater stability, you may need to pursue greater ticket objects like eye exams, glasses and call lenses or dental work, prompt Sprung, who can be the creator of the ebook “Financial Planning Made Personal.”
It’s additionally a good time to pay for any excellent medical payments that have been incurred in the course of the 12 months, Rouleau famous.
The funds can even be used for routine care objects corresponding to over-the-counter medicines like ache relievers or allergy medicines, in addition to sunscreen, pimples care and different routine care merchandise, she famous.
Purchases made on FSA Store’s web site up till midnight on Dec. 31 may qualify towards your 2023 stability.
3. Start planning for subsequent 12 months’s FSA funds.
When working with households to plan for FSA spending, “the first year is the hardest,” Sprung stated.
If you haven’t been preserving observe of your out-of-pocket medical bills, it may well be powerful to gauge, he stated.
Sprung sometimes advises households to estimate how a lot they may spend, and maybe reduce that whole again a bit.
In following years, as soon as you have FSA receipts or card transactions, that may make it simpler to estimate how a lot cash you and your household may need, Sprung stated.
If you’re carrying an FSA stability into 2024, it may be a signal you may need to contribute much less when it comes time to elect your deferrals subsequent 12 months, he stated.
“[If] you think that next year is going to be a similar year, then you certainly want to use that as a gauge and start cutting back,” Sprung stated.
Keep in thoughts that life adjustments, such because the start of youngsters or a divorce, may additionally have an effect on how a lot you need to put aside in your FSA, he stated.
Importantly, flexible spending accounts are absolutely funded on the primary day of the plan 12 months. As such, you may plan to begin utilizing subsequent 12 months’s funds earlier to keep away from working up towards subsequent 12 months’s December deadline.
Keep in thoughts that if you go away your job at any level in the course of the 12 months, both voluntarily or involuntarily, you may lose entry to your stability, until you are allowed COBRA continuation for your FSA, Sprung famous. However, you may nonetheless have 60 to 90 days to submit receipts.